UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission File
June 30, 1996 Number 33-22264-FW
MARKET DATA CORP.
(Exact name of registrant as specified in its charter)
TEXAS 76-0252235
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
14505 Torrey Chase Blvd., Suite 410, Houston, Texas 77014
(Address of principal executive offices)
(713) 586-8686
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months or
for such shorter period that the registrant was required to file
such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____
The aggregate market value of the 16,756,255 shares of common
stock of the Registrant held by non-affiliates on June 30, 1996,
was approximately $1,908,374
On June 15, 1996, 16,756,255 shares of common stock (the
Registrant's only class of voting stock) were outstanding.
PART I
Item 1. Business
MARKET DATA CORP. (MDC)
Software
During the fiscal year ending March 31, 1991, the sale of financial
information and analysis software became a material product line
for the Company. The Company withdrew from this market in 1996.
This was due to software manufactures changing their method of
distribution, reducing margins to dealers and making software sales
of these products unprofitable.
Text Service
In October, 1991, the Company started the development of a new
product called Text Service. This service is a digest of today's
leading investment advisors' market analysis. This digest is
broadcast daily to customers of Data Broadcasting Corporation,
Bonneville Market Information Company, Global Market Information,
Inc., and Data Transmission Network Corporation. This product of
the Text Service division is called MarketLine.
On March 24, 1993, the Company signed an agreement with Prodigy
Services Company to broadcast a product to Prodigy subscribers
called the Wall Street Edge. Broadcasting of this product
commenced in April, 1993. Also in June 1993, Wall Street by Fax,
Inc. (WSBF) a New York City based provider of fax-on demand
financial information, began advertising the Company's financial
digest, under the name Wall Street Whispers.
The Company has recently retained Alliance Internet Marketing of
Nashville, Tennessee, to assist the Text Service division in the
design and implementation of a web site. Typically, subscribers
access the service via a third party vendor, such as Prodigy, and
subscription revenue is shared. The web site will facilitate
direct subscription to the Text Service's products through the
Internet, allowing the Company to receive 100% of the subscription
revenue.
This division continues to contribute significantly to the overall
gross profit of the Company. Management will continue to explore
opportunities to grow in the on-line service area.
Licenses
The Company had a license distribution agreement with DBC in four
cities in the United States. Under the agreement, the Company
obtained a sub-carrier agreement with an FM radio station selected
by mutual agreement of DBC and the Company. The license agreement
was sold to DBC, March 31, 1994.
InfoPlan
On July 15, 1993, the Company entered into an option agreement to
acquire 100% of Infoplan International, Inc. an Arizona
corporation. Additionally, the Company loaned Infoplan $150,000
and agreed to make available $100,000 to finance their business
activities.
Management opted to not exercise the option to acquire InfoPlan
and, subsequently, the option expired on January 31, 1994.
The Company holds as collateral an assignment agreement where, in
the event of default, the Company has all rights to foreclose on
Infoplan's trademark and property software. As of fiscal year end,
March 31, 1995, InfoPlan owed the Company $359,558. InfoPlan paid
$147,000 in fiscal 1996 against this balance. InfoPlan and owner
Michael Wing, still owes the Company $211,394 which is currently
due and payable. Failure to collect this amount could have a
material adverse effect on the Company's financial position.
Renet
On September 14, 1994, Market Data Corp. (MDC) announced it had
signed a letter of intent to acquire Renet Financial Corp. (RENET)
of Anaheim, California.
On January 19, 1995, MDC announced that it had terminated
acquisition talks with Renet due to the inability of the parties to
reach final terms. However, On June 30, 1995, MDC signed a letter
of intent representing the willingness of the management of both
companies to continue the merger talks. On March 31, 1996 the
acquisition of Renet was completed. Renet is a wholly owned
subsidiary of MDC.
Renet is a franchise based mortgage lending company which provides
services in the State of California. Renet provides mortgage
lending services as a broker/banker to franchisees and customers,
which include originating, processing, and funding mortgage loans,
that are subsequently sold to the secondary market. In 1995, Renet
introduced two new financial services that provide funding and
placement of equity based credit lines and Second Trust Deeds,
which complement and enhance the growth of the financial services
offered to the market.
Renet offers an affiliation to licensed brokers with the
availability of funding only conventional or VA loans. The
licensed broker operates independently. The broker pays Renet a
royalty fee of 15% of the loan fees upon completion of each loan
transaction. Renet also receives royalty payments and origination
fees for the funding and placement of mortgage loans. In the event
Renet funds the loan directly from its funding division, it will
also receive funding fees. These fees are categorized as a gain
(loss) on sales.
Renet is a qualified Title I Non-supervised Mortgagee ("Direct
Endorsement Lender") under the regulations promulgated by the U.S.
Department of Housing and Urban Development ("HUD"). This
qualification enables Renet to originate, process, fund, and broker
applications for FHA Title I loans. This approval does not extend
to the Company's franchised office. As a condition of that
qualification, the Company is required to conform to certain HUD
regulations and a net worth requirement of $250,000. Renet is also
a qualified Veterans Administration ("VA") Automatic Lender and is
approved under the VA Lender Appraisal Processing Program ("LAPP").
Renet also holds a Consumer Finance Lender ("CFL") license from the
California Department of Corporations.
Renet's $3.0 million warehouse credit line, was terminated in May
1996. This significantly restricted its ability to direct fund
loans.
Renet's future operations will be dependent upon a variety of
factors, including the maintenance of the warehouse line of credit.
It is used solely for the purpose of funding loans. In order to
increase the warehouse credit line, it is necessary to increase
assets. The Company anticipates that it may be required to secure
additional capital to fund growth, if any. The financial stability
of this division is also dependent upon the successful marketing of
its financial services to wholesale brokers, the licensing of new
franchisees and retail loan operations, and the retirement of long-
term debt obligations as a result of the restructuring of the
division's operations.
In addition to these factors, the state of the economy,
legislation, and regulatory requirements, play a major role in the
mortgage lending industry. These factors are dependent upon
numerous elements beyond the control of Renet; however, management
must be ready to adapt to these changes as they occur.
Item 2. Properties
The Company (MDC) presently leases approximately 2,660 square feet
of commercial space in Houston, Texas consisting of offices and
storage facilities. The current lease expires during November,
1997.
The subsidiary (RENET) leases approximately 5,000 square feet of
commercial space in Orange, California, consisting of office space
and storage facilities, current lease expires September 1997.
Item 3. Legal Proceedings
InfoPlan International, Inc.
InfoPlan International, Inc. failed to meet the terms of the
repayment schedule previously agreed to on November 4, 1994. On
June 16, 1995 demand was made for repayment, in full of all monies
owed the Company by InfoPlan. On September 25, 1995 the Complaint
was filed in Federal Court.
Michael J. Wing, President of InfoPlan, signed an Agreed Judgement
for actual damages in the amount of $358,394.82, attorney fees in
the amount of $9,442.13, pre-judgment interest in the amount of
$6,598.39 and post-judgment interest at the rate allowed by law.
The Agreed Judgment, entered on November 27, 1995, was final as of
December 27, 1995. Mr. Wing was notified by legal counsel,
Sheinfeld, Maley & Kay, Houston, Texas, on January 10, 1996, that
MDC was prepared to abstract judgment in each county where Mr. Wing
or InfoPlan owns property, and to file a writ of execution and bill
of sale.
On February 9, 1996, Mr. Steven C. Naremore, on behalf of MDC, and
Mr. Michael J. Wing, on behalf of InfoPlan, signed a Covenant Not
To Execute. On February 12, 1996, MDC received a payment from
InfoPlan in the amount of $147,000.00. The balance of principal,
$211,394.82, attorney fees, pre-judgment interest, and post-
judgment interest will be paid in installments on May 31, 1996,
July 31, 1996, and Sept. 30, 1996. InfoPlan failed to meet the
installments and, the Agreed Judgment may be executed without
notice.
Market Data Corp. of New York
On July 17, 1995, the Company received a proposed Settlement
Agreement from Market Data Corporation (MDC) of New York, who
previously had contacted the Company regarding a potential "name"
conflict. MDC of New York asserted that their use of the name
preceded the Company's use by a matter of months and had requested
the Company consider a name change. On October 27, 1995, the
settlement agreement was accepted and signed by Steven C. Naremore,
President. The agreement provides the Company $27,500, in two
installments of $13,750 each, to cover related expenses. On
December 8, 1995, the first installment was received. To avoid
legal action, by either party, the Company has agreed to change its
name, pending shareholder approval.
Current Legal Matters Concerning Renet Financial Division
The following is a list of stipulated judgments incurred by the
Renet division due to their downsizing and closing of branch
offices:
1) WCB Thirteen Limited Partnership - For lease payments remaining
on the Anaheim office. Judgment is for $36,000, to be paid in
three payments beginning March 15, 1996. As of May 30, 1996, the
balance due was $0.
2) Mission Airport, Inc. - For lease payments remaining on the
Ontario office. Judgment is for $39,960, with payments of $2,220
beginning June 1995. As of June 30, 1996, the balance due was
18,000.
3) Western Security Mortgage - For commission dispute. Judgment
is for $12,500, with payments of $750 beginning April 1, 1996.
4) Federal Express Corp. - For courier service. Judgment is for
$11,219.37, with payments of $1,000 per month beginning February
1996. As of June 30, 1996, the balance due was $8,400.
The Renet division also has two unresolved lawsuits as of March 31,
1996. Reed Printing filed an action on January 8, 1996, in
Municipal Court, State of California, for non-payment of printing
services totalling $22,291.07. Renet has disputed the amount owed
and will seek a settlement for a lesser amount. Morlin Management
Corp. filed an action on January 6, 1996, in Municipal Court, State
of California, in the amount of $27,589.95. This amount represents
lease payments on the Pasadena office which was closed. Renet
expects to settle this dispute for a lesser amount.
On March 25, 1996, Renet received from HUD, Notice of Violation and
Notice of Intent to Request Civil Money Penalty dated March 20,
1996. The annual audit of Renet's FHA loans, conducted January
1996, found the following violations of HUD-FHA requirements: 1)
failure to implement and maintain an adequate Quality Control Plan
for the origination of HUD-FHA insured mortgages; 2) failure to
comply with HUD report requirements under the Home Mortgage
Disclosure Act for the year 1994; 3) failure to remit up front
mortgage insurance premiums to HUD within 15 days from the date of
loan closing and failure to remit late charges and interest
penalties; 4) failure to submit loans to HUD for endorsement in a
timely manner; 5) use of MIP funds to close HUD-FHA insured
mortgages; 6) failure to report to HUD that Renet had suffered a
loss of more than 20 percent of its net worth in 1994 and, 7)
failure to document the sources of funds used to close insured
mortgages.
On April 19, 1996, Renet responded to the Notice of Violation and
Notice of Intent to Request Civil Money Penalty. On May 28, 1996,
Renet received notice from HUD, dated May 23, 1996, that their
authority to lend through HUD-FHA loan programs had been withdrawn
for a period of three years due to violations of HUD regulations.
In addition, HUD has proposed to seek $50,000 in civil penalties.
Renet has thirty days in which to seek a hearing to review these
findings, and will do so in an effort to have these penalties
reduced. HUD has agreed to wait for the annual financial
statements before setting a hearing date, but it is unlikely that
the penalties will be reduced.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fiscal year ended June 30, 1996.
Item 5. Other Information
The Board of Directors met on November 19, 1996 and determined that
it was in the best interest of the company not to continue the
operation of Renet Financial Corporation. The Board elected to
distribute Market Data's ownership in Renet Financial to its
shareholder's of record as of November 19, 1996, on a prorata
basis. It is anticipated that this transaction will be completed
within the next 10 days. The distribution of RENET has no negative
impact on the Company.
The Board also stated that it recognizes the need for two
additional outside directors and has agreed to begin a search for
same. The Board's objective is to have this accomplished by the
first quarter (calendar) of 1997.
Effective November 18, 1996, Michael F. Pope and Philip C. LaPuma
resigned as officers and directors of Renet Financial Corporation.
Also Carlos Silva resigned as an officer of Renet Financial
Corporation.
Market Data Corporation (MDC) having advanced certain funds to
Renet Financial Corporation (RENET), held a note from RENET in the
amount of $196,000 secured by an assignment of intellectual
property rights which included all trademarks, service marks, all
trade secrets, franchise rights and territories, all licenses,
franchise systems and agreements, the right to recover for past,
present, and future infringement on the foregoing and all rights
corresponding thereto throughout the world, and all proceeds of
infringement suits. On November 18, 1996, MDC foreclosed on its
note secured by RENET's intellectual property rights.
On November 5, 1996, the Company formed a new wholly owned
subsidiary named, Renet Services, California (RSC), Michael Pope,
and Vicki Pope are officers and directors of this new subsidiary.
On November 18, 1996, MDC placed therein the foreclosed
intellectual property rights described above in exchange for a
secured note for $196,000.
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters.
The common stock of the Company commenced trading in the over-the-
counter market on November 19, 1988. The following table sets
forth, for the periods indicated through the fiscal year ended June
30, 1996, the range of high and low bid quotations for the
Company's common stock as reported by a market-maker in the
Companies securities.
The quotations which appear below reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not
represent actual transactions.
<TABLE>
<S> <C> <C>
Quarter Ended High Bid Low Bid
____________________ _________ _________
June 30, 1993 $ 1.75 $ .75
September 30, 1993 $ 1.50 $ .875
December 31, 1993 $ 1.00 $ .875
March 31, 1994 $ 1.00 $ .875
June 30, 1994 $ .875 $ .75
September 30, 1994 $ 1.25 $ .625
December 31, 1994 $ .875 $ .625
March 31, 1995 $ .75 $ .375
June 30, 1995 $ .625 $ .375
September 30, 1995 $ .50 $ .375
December 31, 1995 $ .375 $ .25
March 31, 1996 $ .62 $ .25
June 30, 1996 $ .50 $ .25
</TABLE>
The Company has not paid any dividends on its common stock and the
Board of Directors of the Company presently intends to pursue a
policy of retaining earnings, if any, for use in the Company's
operations and to finance expansion of its business. The
declaration and payment of dividends in the future, of which there
can be no assurance, will be determined by the Board of Directors
in light of conditions then existing, including the Company's
earnings, financial conditions, capital requirements, and other
factors.
As of June 30, 1996, the company had approximately 153 shareholders
of record, which does not include shareholders whose shares are
held in street or nominee names.
Item 6. Selected Financial Data
The following summarizes certain selected financial data, which
should be read in conjunction with the Company's financial
statements and related notes and with Management's Discussion and
Analysis of Financial Condition and Results of Operations included
elsewhere herein. The selected financial information set forth
below has been derived from the Company's audited financial
statements included in this report, and should be read in
conjunction with the financial statements and related notes.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Market Data Only
Year Ended Year Ended March 31, Year Ended
June 30, June 30,
___________ _______________________________________________ _____________
1996 1995 1994 1993 1992 1996
Consolidated
___________ ___________ ___________ ___________ ___________ _____________
Operation Data
Revenue $ 430,002 $ 635,015 $ 973,949 $1,018,815 $1,143,994 $ 3,327,113
Net Income
(loss) $ (90,330) $ (36,162) $ 343,758 $ (17,394) $ 69,821 $(1,498,327)
Net Income
(loss)
per share $ (.005) $ (.007) $ .063 $ (.003) $ .014 $ (.089)
Weighted
average
number of
shares 16,756,255 5,562,917 5,458,333 5,120,000 5,120,000 16,756,255
Market Data Only
Year Ended Year Ended March 31, Year Ended
June 30, June 30,
___________ _______________________________________________ _______________
1996 1995 1994 1993 1992 1996
Consolidated
___________ ___________ ___________ ___________ ___________ _______________
Balance Sheet Data
Current
Assets $ 141,363 $ 367,881 $ 590,614 $ 95,973 $ 133,448 $2,806,342
Total
Assets $ 504,097 $ 644,481 $ 858,001 $ 260,310) $ 264,615 $3,388,102
Current
Liabilities $ 23,602 $ 46,082 $ 225,940 $ 40,507 $ 27,418 $3,705,628
Shareholders'
Equity $ 516,495 $ 598,399 $ 632,061 $ 219,803 $ 237,197 $ (755,547)
Per Share
Equity $ .031 $ .106 $ .116 $ .040 $ .046 $ (.045)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
During the year ended June 30, 1996, the Company sustained decreases in
cash of $49,654. Of this amount, a decrease of $49,654 was from
Operating Activities.
The Operating Activities included an increase in Accounts Receivable of
$(5,189). Operating Activities included a decrease in Federal Income
Tax receivable of $24,161 and a decrease in the Receivable from
Infoplan of $146,830. There was an increase in Notes Receivable from
the subsidiary of $196,000.
The capital expenditures for the next year are anticipated at
approximately $10,000. These expenditures will be for computer systems
and new copiers. Funding for these expenditures will be from current
operations. For periods beyond one year, the Company anticipates that
any required expenditures can be financed from current operations. The
nature of these expenditures would be for additional computer systems
and office equipment.
In 1993, the Company held an equity position in the company, DataSport,
Inc. (DSI), at a stated cost of $36,000. This company markets a sports
information system in the same form as the QuoTrek. Market Data was
one of the marketing companies in addition to being a stockholder.
During 1994, DBC acquired all the shares of DSI. In exchange for its
150 shares of DSI, the Company received a warrant to purchase 9,167
shares of DBC common stock at $4.61 per share. This warrant expires
December 31, 1998. At March 31, 1994, the Company recognized a $12,000
loss on the Data Sport, Inc. investment. The Company recognized no
loss on the investment for the year ending June 30, 1996.
Results of Operations
Years Ended June 30, 1996 and 1995
Market Data Corp - Houston
The revenue for the fiscal year ended June 30, 1995, was $430,002
versus $631,224 for the previous year, a decrease of 31.9%.
Hardware Sales
The Company continued to have a decrease in the hardware sales and
gross profit. This decrease is primarily due to the change in
marketing strategy of Data Broadcasting Corp., the Company's main
supplier of hardware. The Company now receives a commission for the
sale of a QuoTrek and a Signal. DBC has ceased using dealers to ship
merchandise, but have continued the sales through the payment of
bonuses only. The Company has discontinued the sale of hardware in
1996.
Software Sales
Software sales for the current year were discontinued, except for the
close out of remaining software inventory.
License fees
At March 31, 1994, the Company sold its license agreemetns to DBC for
an initial payment of $400,000, plus a participation in the revenue, in
the markets, through March 31, 1999, not to exceed $400,000. At March
31, 1994, the Company recognized a gain of $378,000 on this
transaction. The Company no longer receives monthly license fees.
Text Service
In October, 1991, the Company started the development of a new product
called Text Service. This service is a digest of today's leading
investment advisors' market analysis. This digest is broadcast daily
to customers of Data Broadcasting Corporation, Bonneville Market
Information Company, Global Market Information, Inc., and Data
Transmission Network Corporation. This product of Text Service is
called MarketLine.
On March 24, 1993, the Company signed an agreement with Prodigy
Services Company to broadcast a Text Service to Prodigy subscribers
called Wall Street Edge. Broadcasting of this product commenced in
April 1993.
The text products incurred a stagnant growth pattern over the past
year, as evidenced by a 23% decrease in revenue. However, this
division continues to contribute significantly to the overall gross
profit of the Company.
As of June 1, 1995, Prodigy began a more aggressive
advertising/marketing campaign for the Wall Street Edge. Also in June,
1995 Wall Street by Fax, Inc. (WSBF) a New York City based provider of
fax-on-demand financial information, began advertising the Company's
financial digest, under the name Wall Street Whispers.
The Company's on-line publishing activities have contributed
significantly to net income during the past year. This trend is
expected to continue as Management explores additional opportunities in
this area on the Internet.
Net Income
The Company had a net loss for the year ending June 30, 1996 of
($90,330) versus a profit of $36,162 for the year ending March 31, 1995
and $268 profit for the quarter ending June 30, 1995. The decrease was
attributed to the loss of software sales and a decrease in Prodigy
subscribers. The general and administrative expenses increased to
$375,872 (74% of income) for the year ending June 30, 1996 versus
$69,294 (58% of income) in the quarter ending June 30, 1995. This
increase was due to legal and accounting expenses incurred for the
acquisition of Renet Financial Corporation.
RENET DIVISION
The following discussion should be read in conjunction with the
attached audited subsidiary financial statements for the year , ending
June 30, 1996.
Total revenues for Renet Financial Corporation decreased to $2,875,115
from $5,537,867 in June 30, 1995, a decrease of 48%. This was due to
the changing of the loan market away from the refinance market to a
weak real estate market in California. The change was brought about
with increases in interest rates and a weak California economy. In
addition, a major factor in reduction in revenues was the loss of HUD
approvals and the subsequent loss of the warehouse lending line of
credit.
Operating expenses decreased to $4,305,108 for the year ending June 30,
1996, compared to $5,579,580 for the year ending June 30, 1995, a
decrease of 22.8%. The Company downsized during this period by closing
branch offices. Commissions paid decreased 49%. Salaries decreased
24.9%. The employee costs did not come down as rapidly as other
expenses, because of the cost of termination including accrued vacation
pay and other benefits.
A net loss resulted for the year of $(1,950,325) as compared to a net
loss of $(39,718) for the prior year ending June 30, 1995. The loss
was due to the drop in revenues and the cost of office closings during
the period. In discussion with the auditors and in response to prior
S.E.C. review the reserve for franchise fees receivable was increased
to reflect the mortgage market downturn and subsequent franchisee
inactivity. Reserved for buy back of loans was significantly decreased
to ($450,000) due to withdrawal of HUD Title II approval and its
insuring activities.
During the year the company continued to experience losses. On May 28,
1996, Renet received a Notice of Withdrawal of HUD Title II lender
approval for a period of three years. The main reason for the
withdrawal was the failure to pay and the late payment of UFMIP funds.
In addition, the letter stated that HUD intends to assess $50,000 in
civil penalties for these violations of HUD regulations. The hearing
date has not been set as of yet, but the penalties will most likely be
enforced. The Company had 30 days in which to request a hearing in
regards to HUD's action, and did so.
Upon Renet's announcement of HUD's action, Renet's warehouse lender,
Imperial Credit Industries (ICI) canceled Renet's warehouse line of
credit and requested that all loans held for sale be promptly sold off.
In addition, Imperial Credit Industries verbally notified Renet that it
would not forward any proceeds of the sales of its loans until all the
loans were sold. To date all loans have been sold. Because of
Imperial Credit Industries restricting the cash flow out of the
warehouse line, several small collection demands and suits have been
commenced against Renet for $3,000 to $20,000. ICI retained fees
including attorney fees on the excuse that Renet caused ICI to incur
these fee to close the warehouse credit line.
Management's action to counter these was to close all remaining branch
offices and reduce staffing and consolidate operations to the main
office in Orange, California. In addition, the funding division was
closed. The funding division required significant working capital and
recently generated operating losses. Renet remains a broker of loans
and is table funding some loans with its lenders. These actions should
move us toward operating profits by the end of this quarter.
On July 26, 1996, the California Department of Real Estate completed an
audit (as a result of the HUD action) and made specific findings which
management believes may lead to a "Cease and Desist" order based on
unpaid MIP's. The audit found $197,077.41 unpaid as of June 30, 1996,
based on Renet's accounting. On July 27, 1996, Management presented
the auditors with a letter of corrective actions. This included that
some of the amounts had already been subsequently paid and that all of
the remaining amounts were paid by August 15, 1996, by agreement with
Homeside Lending and other lenders will advance the funds on Renet's
behalf. Each of the lenders has submitted demands to Renet for the
repayment of the amounts advanced as follows:
Countrywide Funding on July 26, 1996, sent a letter to Renet demanding
payment of $30,707 plus late fees of $1,381.85 for MIP advances. In
addition Countrywide demanded repurchase of loans totaling $600,000 on
November 7, 1996, under the repurchase agreement.
First Nationwide Mortgage has demanded $67,424 which is the remaining
balance on funds advanced for MIP's.
Homeside Mortgage is advancing the balance plus late charges and fees
($140,000 estimated), and had made its demand.
First Nationwide, on July 19, 1996, demanded repurchase by Renet of
loans totaling $336,456. The reason is that these loans had late
payment of MIP's and FHA will not issue insurance unless the borrower's
payments are on time. If there is a late payment, FHA requires a
period of six months with no late payments to insure the loan. Renet
has asked First Nationwide for the payment history and status of each
loan to determine if and when they may be insured to determine if they
may be resold to another lender.
Consolidated Statements:
<TABLE>
<S> <C> <C> <C> <C>
Net Change
_______________________
6/30/96 6/30/95 Change % Change
____________ ____________ ____________ ____________
Revenue
Product and Software Sales $ 413,324 $ 538,482 $ (125,158) (23)
Loan Origination fees $ 1,985,286 $3,778,795 $(1,793,509) (47)
Gain on Sale of Mortgages $ 587,601 $1,065,435 $ (477,834) (45)
Initial Franchise Sale $ 207,262 $ 538,470 $ (331,208) (62)
Other Fees and Income $ 131,644 $ 155,167 $ (23,523) (15)
____________ ____________ _____________ ____________
Total $ 3,305,117 $6,078,344 $ 2,773,227 (46)
____________ ____________ _____________ ____________
Text Operating Costs 144,480 206,831 (62,371) (30)
Text G&A 375,872 331,651 44,221 13
Franchise commissions 463,194 1,087,420 (624,226) (57)
Salaries & Benefits $ 1,112,699 $1,461,740 (349,041) (24)
Loan Officer Commissions 942,951 1,845,100 (902,149) (49)
Marketing 35,737 122,234 (86,497) (71)
Loan Processing Costs 234,143 322,588 (88,445) (27)
Other G&A 1,958,133 1,105,723 852,410 77
Other Expense 454,455 (33,574) 488,029 (1454)
____________ ____________ _____________ ____________
Total Expenses $ 4,891,317 $6,118,062 $(1,226,745) (20)
____________ ____________ _____________ ____________
Net Income (Loss) $(1,586,200) $ (39,718) $ 1,546,482 (38.9)
============ ============ ============= ==============
</TABLE>
Item 8. Financial Statements and Supplementary Data
The response to this item is being submitted as a separate Section of
this report.
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
The Company announced that its Houston based accountants, Weinstein
Spira & Company, P.C., Certified Public Accountants, 2200 Five Greenway
Plaza, Houston, Texas 77048, declined to stand for re-election. The
reason was the change in the core business of the company with the
acquisition of Renet Financial Corporation.
At issue was the time to complete the audit with travel to California,
and the requirements for the auditing of mortgages. As such, a new
accounting firm with mortgage experience was sought by the Board of
Directors. The board hired Michael B. Johnson & Co., P.C. 9175 East
Kenyon Ave. Suite 100, Denver, CO 80237. The Board of Directors has
authorized the former auditors to discuss all matters with the
Company's new auditors without limitation.
Part III
Item 10. Directors and Executive Officers of Registrant
The present directors and executive officers of the Company, their
ages, positions held in the Company and duration of service are as
follows:
Name Age Position Since
__________________ ____ ________________ _____________
Michael F. Pope 47 Director March 1996
President August 1996
Philip C. LaPuma 57 Director March 1996
Secretary August 1996
Treasurer August 1996
Steven C. Naremore 40 President March 1988
Director March 1988
Resigned August 1996
Janice S. Whalen 48 Secretary June 1994
Treasurer June 1994
Director June 1994
Resigned August 1996
Business Experience
The following is a brief account of the business experience during at
least the past five years of each director and executive officer,
including the principal occupation and employment during that period,
and the name and principal business of the organization in which such
occupation and employment were carried out.
Michael F. Pope, age 47, has been a Director of the Company since March
1996, and President since August 1996. Mr. Pope was one of the
founders of Renet Financial Corporation in 1988. He has a Bachelor of
Arts degree in Economics from California State - Long Beach.
Philip C. LaPuma, age 57, has been Director of the Company since March
1996 and Secretary / Treasure since August 1996. Mr LaPuma holds a
Bachelors of Science degree in Engineering from Stanford University and
an MBA in General Management from University of Southern California.
He was a founder of Renet Financial Corporation in 1988.
Steven C. Naremore, age 38, has been president, chief executive officer
and a director of the Company since its inception in March 1988. In
May 1989, Mr. Naremore became vice president of D.E. Wine Investments,
Inc. and resigned effective September 1994. On August 7, 1996, Mr.
Naremore resigned as a Director and as an officer of Market Data Corp.
in a disagreement with the board over the disclosure and consequences
of the HUD approval withdrawal within the Renet Financial Corporation.
Janice S. Whalen, age 46, has been a director, secretary and treasurer
of the Company since June 1994, following the death of her husband and
director of the Company, W.E. Whalen. Ms. Whalen holds a BBA in
Accounting and an MBA from University of Texas at Tyler. She is also
a Certified Public Accountant in the state of Texas. Ms. Whalen has
worked in various private industries as well as taught college level
accounting. Ms. Whalen has worked for the company since June 1991.
On August 7, 1996, Ms. Whalen resigned as a Director and as an officer
of Market Data Corp. in a disagreement with the board over the
disclosure and consequences of the HUD approval withdrawal within the
Renet Financial Corporation.
Item 11. Executive Compensation
The following table sets forth the summary compensation for all
officers for services during the three fiscal years ended March 31, and
for the three month period ended June 30, 1995.
<TABLE>
<S> <C> <C> <C> <C>
Long Term
Annual Compensation Compensation
________________ _____________
Name & Principal Position Period Salary Bonus Options (#)
_________________________ _______ _______ _______ _____________
Michael F. Pope 6/30/96 $48,000 $ 0 535,875
Director and President
Philip C. LaPuma 6/30/96 $48,000 $ 0 535,875
Secretary and Treasurer
Steven C. Naremore 6/30/96 $23,700 $ 0
President 6/30/95 $12,500 $
3/31/95 $50,000 $ 2,500
3/31/94 $50,000 $15,000
3/31/93 $50,000 $ 2,083 150,000
W.E. Whalen, 3/31/95 $ 8,333 $ 0
Vice President 3/31/94 $50,000 $15,000
3/31/93 $50,000 $ 2,083
Janice S. Whalen, 6/30/96 $29,100 $ 0
Secretary/Treasurer 6/30/95 $12,480 $ 0
3/31/95 $44,000 $ 1,500 150,000
</TABLE>
Aggregated Option Exercises and Fiscal Year End Option Values
<TABLE>
<S> <C> <C> <C>
Number of Unexercised Value of Unexercised In-
Options at Fiscal Year The-Money Options at
End Exercise or Fiscal Year End
Name Exercisable (#) Base Price Exercisable
________________ ______________ ____________ _____________________
S.C. Naremore 150,000 $ .50 $ 0
Janice S. Whalen 100,000 $ .50 $ 0
Michael F. Pope 535,875 $ .43 $ 0
Philip C. LaPuma 535,875 $ .43 $ 0
</TABLE>
The Company does not have any long-term incentive plans nor pension
plans.
Duncan E. Wine, the Company's outside director, until November 1994,
did not receive any cash compensation. During the fiscal year, ended
March 31, 1994, Wine exercised an option to purchase 300,000 shares of
stock at $.005 per share. The market price of the stock at the date of
grant was $.05 per share.
The Company's Board of Directors served as the Compensation Committee
during the last fiscal year. There are not any interlocking board
arrangements among the directors.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
As of June 30, 1996, four officers and directors were known to own or
control beneficially more than five percent of the Company's
outstanding voting stock. The table below sets forth the total number
of shares of the Company's outstanding voting stock owned by
individuals, organizations, and officers of the Company and of all
officers and directors as a group.
<TABLE>
<S> <C> <C> <C>
Title of class Name and Address of Number of Shares Owned Percent
Beneficial Owner Beneficially and of Record of class
- --------------- --------------------- -------------------------- ---------
Common Stock Steven C. Naremore 1,502,800 9%
3910 FM 1960 West
Suite 130
Houston, TX 77068
Common Stock Janice S. Whalen 500,000 3%
2016 Main St.
Suite 2202
Houston, TX 77002
Common Stock Michael L. Pope 3,180,150 19%
1182 N. Tustin Ave.
Orange, CA 92867
Common Stock Philip C. LaPuma 2,628,430 16%
1182 N. Tustin Ave.
Orange, CA 92867
7,811,380 47%
</TABLE>
Item 13. Certain Relationships and Related Transactions
There were no transactions, or series of transactions, for the fiscal
year ended June 30, 1996, nor are there any current proposed
transactions, or series of the same, to which the Company is a party,
in which the amount exceeds $60,000 and in which, to the knowledge of
the Company, any director, executive officers, nominee, five percent
shareholders or any member of the immediate family of the foregoing
person, have or will have a direct or indirect material interest.
ITEM IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form
8-K
(a) (1) and (a) (2)
The financial statements and schedules are filed as part of this
report.
(a) (3)
None
(b), (c), and (d)
On August 9, 1996 an 8-K was filed listing the preliminary financials
for Renet Financial Corporation. That report has been replaced by the
audited financials in this report.
A Financial Data Schedule will be filed as an Exhibit to this report
for the year ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MARKET DATA CORPORATION
(Registrant)
11/26/96 Michael F. Pope
Date (Signature)
11/26/96 Philip C. LaPuma
Date (Signature)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons,
which include the principal executive officer, principal financial
officer and a majority of the Board of Directors, on behalf of the
Registrant in capacities and on the dates indicated.
Signature Title Date
Michael F. Pope Director 11/26/96
(Signature) (Principal Executive Officer) Date
Philip C. LaPuma Director 11/26/96
(Signature) (Principal Financial Officer) Date
ITEM 14.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
Market Data Corp. (parent company only)
Balance Sheets at June 30, 1996
Statement of Operations dated June 30, 1996
Statement of Stock Holders Equity dated June 30, 1996
Statement of Cash Flows dated June 30, 1996
Notes to Financial Statements
Financial Statements
Renet Financial Corporation
Balance Sheets at June 30, 1996
Statement of Income and Retained Earnings (deficit)
dated June 30, 1996
Statement of Cash flows for year end June 30, 1996
Notes to financial statements
Financial Statements
Consolidated
Independent Auditors' Report
Balance Sheet for year ended June 30, 1996
Statement of Operations for year ended June 30, 1996
Statement of Cash Flows for year ended June 30, 1996
Statement of Stockholders' Equity for the year ended
June 30, 1996
Notes to financial statements
(a) (2) Financial Statement Schedules
A Financial Data Schedule, Article 5 of Regulation S-X
will follow this report as an exhibit.
MARKET DATA CORPORATION
FINANCIAL STATEMENTS (Parent Company Only)
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
MARKET DATA CORP
BALANCE SHEET
June 30,1996
<S> <C> <C>
1996 1995
___________ ___________
ASSETS
Current Assets
Cash and Cash equivalents $ 25,038 $ 74,702
Accounts receivable 64,541 59,352
Inventory 5,058 6,607
Prepaid Expenses 4,157 4,288
Federal income tax receivable 0 24,161
Receivable from InfoPlan 42,569 189,399
___________ ___________
Total current assets 141,363 358,509
Property and Equipment, net
of accumulated depreciation
of $49,780 at June 30, 1996
and 1995, respectively 9,908 18,072
Other Assets
Customer database, net of
accumulated amortization
of $59,495 at June 30, 1995 0 4,600
Other receivables 0 55,560
Investment in equity securities 24,000 24,000
Note receivable from InfoPlan 168,826 168,826
Note receivable from subsidiary 196,000 0
___________ ___________
Total other assets 388,826 252,986
___________ ___________
TOTAL ASSETS $ 540,097 $ 629,567
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 22,553 $ 21,686
Payroll and sales tax payable 149 156
Customer deposits 900 900
___________ __________
Total current liabilities 23,602 22,742
STOCKHOLDERS' EQUITY
Common Stock; $.001 par value;
50,000,000 shares authorized
16,756,255 and 5,589,000 shares
issued and outstanding at
June 30, 1996 and June 30, 1995,
respectively 16,756 5,589
Additional paid-in capital 298,642 309,809
Retained earnings (deficit) 201,097 291,427
___________ ___________
Total stockholders' equity 516,495 606,825
___________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 540,097 $ 629,567
=========== ===========
</TABLE>
MARKET DATA CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C>
For the
Year Ended Three Months
June 30, June 30,
1996 1995
____________ ____________
REVENUE:
Product and software sales $ 413,324 $ 118,307
Other revenue 16,678 0
____________ ____________
Total Revenue 430,002 118,307
COSTS AND EXPENSES:
Operating Costs 114,460 48,745
Other general and administrative 375,872 69,294
____________ ____________
Total Operating Expenses 520,332 118,039
NET INCOME (LOSS) $ (90,330) $ 268
____________ ____________
NET INCOME (LOSS) PER COMMON SHARE $ 0 $ (0.01)
____________ ____________
WEIGHTED AVERAGE SHARES OUTSTANDING 9,311,418 5,576,520
____________ ____________
</TABLE>
MARKET DATA CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional Retained Total
COMMON STOCK Paid-in Earnings Stockholder'
______________________
Shares Amount Capital (Deficit) Equity
___________ __________ __________ _________ ____________
Balance -
March 31, 1995 5,565,000 $ 5,565 $ 301,675 $ 291,159 $ 598,399
Issuance of Stock 24,000 24 8,134 0 8,158
Net Income 0 0 0 268 268
___________ __________ __________ _________ ____________
Balance -
June 30, 1995 5,589,000 5,589 309,809 291,427 606,825
Issuance of Stock 11,167,255 11,167 (11,167) 0 0
Net Loss 0 0 0 (90,330) (90,330)
___________ __________ __________ __________ __________
Balance -
June 30, 1996 16,756,255 $ 16,756 $ 298,642 $ 201,097 $ 516,495
=========== ========== ========== ========= ==========
</TABLE>
MARKET DATA CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
For the
Year ended Three Months
June 30, June 30,
1996 1995
___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (90,330) $ 268
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,072 5,780
(Increase) Decrease in:
Accounts receivable (5,189) (21,841)
Customer database 3,692 0
Officer receivable 55,560 (238)
Inventory 1,549 (1,892)
Prepaid expenses 131 (525)
Federal income tax receivable 24,161 0
Receivable from InfoPlan 146,830 1,333
Note receivable from subsidiary (196,000) 0
Increase (Decrease) in:
Accounts payable 867 (14,553)
Payroll and sales tax payable (7) (629)
____________ __________
Net Cash Provided by (Used in)
Operating Activities (49,554) (32,297)
____________ __________
Net Increase (Decrease) in Cash
and Cash Equivalents (49,564) (32,297)
Cash and Cash Equivalents-
Beginning of Period 74,702 106,999
____________ __________
Cash and Cash Equivalents-
End of Period $ 25,038 $ 74,702
____________ __________
Supplemental Schedule of Noncash
Investing and Financing Activities:
</TABLE>
There were no cash payments for interest during the three-year and
three month period ended June 30, 1995 nor year ended June 30, 1996.
MARKET DATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30,1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Market Data Corp., a Texas Corporation, traded on the National
Quotation System under the symbol ("MADA"), Market Data Acquisition
Corp. ("MDAC"), a California corporation and Wholly-owned subsidiary of
MDC, and Renet Financial Corporation ("RENET"), a California
corporation, entered into a Plan and Agreement of Merger (the "Plan")
on October 25, 1995, to merge RENET with and into MDAC (the "Merger"),
with Renet being the surviving corporation and wholly-owned subsidiary
of MDC, and MDAC ceasing operations.
The Merger was completed on March 1, 1996, and in accordance with the
Plan: 1) each outstanding share of RENET common stock was converted
into the right to receive 0.9403555 shares of MDC's common stock; 2)
each outstanding share of RENET preferred stock was converted into the
right to receive 5.642133 shares of MDC's common stock; 3) each option
currently outstanding to purchase shares of RENET common stock was
converted into the right to purchase .9403555 shares of MDC's common
stock; and 4) RENET became a wholly owned subsidiary of MDC. The
shareholders of RENET own 66.25% of the issues and outstanding shares
of MDC following the Merger.
No monetary consideration was exchanged in the merger. The merger was
a combination of a pooling of interests of both parties. MDC issued
11,167,255 shares of its common stock in exchange for each outstanding
share of RENET common stock, which was converted into the right to
receive 0.940355 shares of MDC's common stock, and each outstanding
share of RENET's preferred stock was converted into the right to
receive 5.642133 shares of MDC's common stock. Each option currently
outstanding to purchase shares of RENET common stock was converted into
the right to purchase shares covered by, and the per share exercise
price of each such option, for a total of 3,525,282 options being
issued. RENET became a wholly-owned subsidiary of MDC. The
shareholders of RENET own 66.25% of the issued and outstanding shares
of MDC following the Merger.
This transaction will be treated as a non-taxable exchange of stock
under Section 368(a)(1)(B) of the Internal Revenue Code of 1936, as
amended.
This transaction will be accounted for as a pooling of interest. The
recorded assets and liabilities of MDC and RENET will be carried
forward to the combined corporation at their recorded amounts. Income
of the combine corporation will include income of MDC and RENET for the
entire fiscal period in which the combination occurs. These financial
statements are not consolidated and are the "Parent Company's"
financial statements only.
These financial statements are presented on the accrual method of
accounting. Significant principles followed by the Company and the
methods of applying those principles which materially affect the
determination of financial position and cash flows are summarized
below:
Description of Business:
Market Data Corp. (The Company) markets financial information systems,
software and on-line subscription financial data. The information
systems are sold under a dealer arrangement with Data Broadcasting
Corporation (DBC), formerly FNN Data Broadcasting. The Company also
has dealer arrangements with several software companies to market
financial information and analysis software.
The Company develops subscription based daily financial text products
that are marketed throughout the financial community. The Company also
publishes a daily financial product called "Wall Street Edge" for
Prodigy Services Company. Subscription fees are shared between the
Company and the respective provider/carrier. Fees range form $20 - $50
monthly.
Revenue Recognition:
Revenue is recognized at the time of sale. Accounts receivable are
written-off when deemed uncollectible.
Cash and Cash Equivalents:
The Company considers all highly-liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of signal receiving equipment and software.
Property and Equipment:
Property and equipment is stated at cost. The cost of ordinary
maintenance and repairs is charged to operations while renewals and
replacements are capitalized. Depreciation is computed on the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures 5 years
Computer equipment and software 3-5 years
Demonstration equipment 5 years
Leased equipment 3 years
</TABLE>
Customer Database:
The customer database, acquired by purchase, is recorded at cost and
was amortized on a straight line basis over 5 years.
Investment in Equity Securities:
As of March 31, 1993, the Company had an investment in 150 shares of
common stock of Data Sport, Inc. stated at a cost of $36,000. During
1994, DBC acquired all of the shares of Data Sport, Inc. and in
exchange for its 150 shares, the company received a warrant to purchase
9,167 shares of DBC common stock at $4.61 per share through December
31, 1998. The Company recognized a $12,000 loss on the exchange,
stating the investment in the DBC warrant, which is classified as
available-for-sale, at an estimated market value of $24,000 at March
31, 1994. There was no change in estimated market value during 1995
nor 1996.
Federal Income Tax:
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes."
FAS 109 requires the recognition of deferred tax liabilities and assets
for the anticipated future tax effects of temporary differences that
arise as a result of differences in the carrying amounts and tax bases
of assets and liabilities. There was no material effect on the
financial statements as a result of adopting FAS 109.
Use of Estimates:
The preparation of financial statements conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - SALE OF LICENSE AGREEMENTS:
Effective March 31, 1994, the Company sold its license agreements to
DBC for $400,000. A gain of $378,099 was recorded in the 1994
Statement of Operations. In addition to the $400,000, DBC will pay to
the Company no later than May 1st each year, the excess, if any, of 50%
of the gross margin generated during each twelve-month period occurring
during the five-year period ending March 31, 1999, less a specified
minimum gross margin. DBC's payment obligations during the five-year
period will not exceed $400,000.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C> <C>
June 30, June 30,
1996 1995
___________ ___________
Furniture and fixtures $ 18,798 $ 18,798
Computer equipment and software 35,945 35,945
Demonstration equipment 3,295 3,295
Leased equipment 1,650 1,650
___________ ___________
59,688 59,688
49,780 41,616
___________ ___________
$ 9,908 $ 18,072
=========== ===========
</TABLE>
NOTE 4 - RECEIVABLES FROM INFOPLAN:
The Company has a note receivable of $168,826 at June 30, 1996 from
InfoPlan International, Inc. The note bears interest at 9% and is due
February 28, 1997. Additionally, the Company has advances to InfoPlan
of $42,569 at June 30, 1996. The note and the advances are secured by
an Intellectual Property Collateral Assignment.
InfoPlan failed to meet the terms of the repayment schedule of the note
receivable. On June 16, 1995, demand was made for repayment in full of
all monies owed the Company by Infoplan. On September 25, 1995, the
Complaint was filed in federal Court.
InfoPlan signed an Agreed Judgment for actual damages in the amount of
$385,395, plus attorney fees, pre-judgment interest and post-judgment
interest. The Agreed Judgment was final as of December 27, 1995. On
February 12, 1996, the Company received a payment from InfoPlan in the
amount of $147,000. The balance of the principal plus other fees was
to be paid in installments on May 31, 1996, July 31, 1996, and
September 30, 1996. Infoplan did not pay these installments. Infoplan
failed to meet the installments, the Agreed Judgment may be executed
without notice. The Company believes the value of the collateral
exceeds the value of the debt.
NOTE 5 - OPERATING LEASES:
The Company leases office space under an operating lease agreement
which expires November 30, 1997.
Future minimum lease payments as of June 30, 1996 are as follows:
Year Ending June 30,
1997 $26,866
RENET FINANCIAL CORPORATION
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
RENET FINANCIAL CORPORATION
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS:
Current Assets:
Cash (Notes 4 and 9) $ 50,765
Restricted cash 5,404
Origination fees receivable 4,900
Franchise fees receivable (Note 2) 128,728
Other receivable and advances 56,420
Mortgage loans held for sale (Note 4) 2,398,837
Prepaid expenses 19,925
_____________
Total Current Assets 2,664,979
Office Furniture and Equipment,
net (Notes 3 and 5) 113,591
Goodwill, net 101,807
Other Assets 3,678
_____________
TOTAL ASSETS $ 2,884,055
_____________
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Mortgage warehouse credit
facility (Note 4) $ 2,398,837
Notes payable to a bank 250,000
Current maturities of capital
lease obligations (Note 5) 43,808
Current maturities of long-term debt (Note 5) 9,537
Accounts payable 391,099
Accrued expenses 379,088
Note payable to an individual 4,000
Trust liability 9,657
Payable due related company 196,000
_____________
Total Current Liabilities $ 3,682,026
Long-Term Liabilities:
Capital lease obligations,
less current maturities (Note 5) 3,378
Long-term debt, less current
maturities (Note 6) 20,693
_____________
Total long-term Liabilities 24,071
Commitments and Contingencies
(Note 7 and 11):
Reserve for buy-back of mortgages 450,000
Stockholders' Equity (Note 8):
Common stock, no par value, 20,000,000
shares authorized, 10,420,224 issued
and outstanding 534,973
Preferred Stock, 500,000 shares authorized,
240,898 shares issued and outstanding 741,849
Retained earnings (deficit) (2,548,864)
_____________
Total Stockholders' Equity (1,272,042)
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 2,884,055
=============
</TABLE>
RENET FINANCIAL CORPORATION
STATEMENT OF INCOME AND
RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
REVENUE:
Loan origination fees $ 1,985,286
Gains on sales of mortgage loans 567,601
Initial franchise sales 207,262
Other fees and income 114,966
____________
Total Revenue 2,875,115
OPERATING EXPENSES:
Franchise commissions 463,194
Salaries and related benefits 1,112,699
Loan officer commissions 942,951
Marketing 35,737
Other loan processing costs 234,143
Other general and administrative 1,582,261
_____________
Total Operating Expenses 4,370,985
OPERATING (LOSS) (1,495,870)
OTHER INCOME (EXPENSE):
Interest income 201,498
Interest expense (205,953)
Loss on buy-back of mortgages (450,000)
_____________
Net Total Other Income (Expense) (454,455)
_____________
NET (LOSS) (1,950,325)
RETAINED EARNINGS (DEFICIT),
BEGINNING OF YEAR (598,539)
_____________
RETAINED EARNINGS (DEFICIT),
JUNE 30, 1996 $(2,548,864)
_____________
</TABLE>
RENET FINANCIAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,950,325)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and amortization 121,990
Losses on buy-back of mortgages 450,000
Change in assets and liabilities:
(Increase) In:
Receivables (net) 835,307
Mortgage loans held for sale (1,212,601)
Prepaid expenses 15,543
Accounts payable and accrued expenses 421,800
_____________
Net cash (used in) operating activities (1,318,286)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of goodwill (48,024)
_____________
Net cash (used in) investing activities (48,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt
obligations (60,785)
Borrowings on mortgage warehouse credit
facility 1,212,601
Proceeds from notes payable to a bank 0
Note payable to an individual (18,000)
Net proceeds from issuance of common stock 109,700
Net proceeds from issuance of preferred stock 0
Cash dividends paid or accrued 0
Cash transferred to a restricted account 0
_____________
Net cash provided by financing activities 1,243,516
_____________
Net increase in cash (122,794)
CASH:
Beginning 173,559
Ending $ 50,765
_____________
</TABLE>
RENET FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business:
Renet Financial Corporation (the Company) sells franchises for full
service loan brokerage operations to licensed real estate brokers. The
Company is also engaged in certain mortgage banking activities
including originating, processing, funding, and selling mortgage loans
to permanent investors.
The Company receives origination fees for securing real estate mortgage
loans for its customers and franchises. In addition, if the Company
funds the loan, it will receive funding fees and may incur a gain or
(loss) on the subsequent sale of the loan.
The Company is qualified as a Title I Nonsupervised Mortgagee (Direct
Endorsement Lender) under the regulations promulgated by the US
Department of Housing and Urban Development (HUD). This qualification
enables it to originate, process, fund, and broker applications for FHA
insured and guaranteed mortgage loans. This approval does not extend
to the Company's franchised offices. As condition of that
qualification, the Company is required to confirm to certain HUD
regulations and a $50,000 net worth requirement.
On May 28, 1996, the Company received a Notice of Withdrawal of HUD
Title II lender approval for a period of three years for failure to pay
the late payment of UFMIP funds. In addition, HUD intends to assess
$50,000 in civil penalties for these violations of HUD regulations.
The company has requested a hearing in reference to the HUD actions.
The date of the hearing has not yet been set. A contingent liability
of $50,000 has been accrued with the potential loss included in the
income statements.
Additionally, the Company is qualified as a Veteran Administration (VA)
Automatic Lender and is approved under the VA Lender Appraisal
Processing Program (LAPP).
The Company also has a Consumer Finance Lender (CFL) license from the
California Department of Corporations. As a result of the HUD action,
an audit was conducted by the California Department of Real Estate and
made specific findings which may lead to a "Cease and Desist" order
based upon unpaid MIP's.
A summary of the Company's significant accounting policies is as
follows:
Restricted Cash:
The Company is required to maintain a deposit account with the bank of
its warehouse line lender. Thus $5,404 of the cash balances are
restricted.
Franchise sales and fees:
Franchise sales and fees are recognized, net of an allowance for
uncollectible amounts, when substantially all significant services to
be provided to the franchisee have been performed.
Franchisees generally pay the entire franchise fee within one to three
years of the date of each franchise agreement. A down payment is paid
upon initiation with the balance payable in monthly installments,
without interest. Certain franchisees have arrangements whereby a
portion of the brokerage fees due to them are offset against their
franchise fee obligation to the Company. Such arrangements are
recorded gross. Franchise receivables, which are expected to be
realized over periods longer than one year, are recorded at their
discounted present value.
Franchise receivables are not recorded on a straight-line basis, using
the normal franchise period of seven (7) years due to the accelerated
payment option extended to the franchisees.
Mortgage loans held for sale:
Real estate mortgage loans held for sale are carried at the lower of
cost or market and market is determined by the price the loans were
sold for.
Office furniture and equipment:
Office furniture and equipment are carried at cost. Depreciation is
computed using the straight-line methods over the estimated useful
lives of the assets. Amortization expense on assets acquired under
capital leases is included with depreciation on owned assets.
Loan origination fees:
The Company recognized loan origination fees and related costs from
loan broker activities when the loan is funded by the lender. If the
Company funds the loan, loan origination fees and any related costs are
included as components of the carrying value of the loans and are
recognized as income when the corresponding loan is sold.
Valuation of common stock issued for compensation:
Certain shares of the common stock were issued to officers in lieu of
salary. Such shares were valued at the price paid by a non-related
party just prior to the issue, which was $ .40 per share.
Goodwill:
Goodwill, acquired in June 1994, is being amortized over a period of
ten (10) years.
NOTE 2 - FRANCHISE FEES RECEIVABLE:
At June 30, 1996, franchise fees receivable consist of the following:
<TABLE>
<S> <C>
Gross franchise fees receivable $ 1,126,968
Amount representing interest (60,000)
Allowance for doubtful accounts (933,340)
_____________
133,628
Less current portion 133,628
_____________
$ 0
=============
</TABLE>
NOTE 3 - OFFICE FURNITURE AND EQUIPMENT:
At June 30, 1996, office furniture and equipment consists of the
following:
<TABLE>
<S> <C>
Office furniture and equipment
acquired under capital leases $ 341,560
Computer hardware and software
acquired under capital leases 174,041
____________
515,601
Less accumulated depreciation of
assets acquired under capital leases 402,010
____________
$ 113,591
============
</TABLE>
NOTE 4 - MORTGAGE WAREHOUSE CREDIT FACILITY:
The Company has a line of credit arrangement (mortgage warehouse credit
facilities) with a financial institution which is used to fund mortgage
loan originations and is secured by the respective mortgage loans which
the facility has funded. Certain of the specific terms for the
agreement are as follows:
<TABLE>
<S> <C>
Facility A
Borrowing base $3,000,000
Advance limits 96% - 100% of loan funded
Interest rate Prime plus 1.5% (10.0%)
Balance outstanding
at June 30, 1996 $2,398,837
Additional collateral Deposit account maintained
at Institution, this
account is restricted
and was $5,404.
Maturity date April 11, 1996 subsequently
extended to October 31,
1996 then canceled in
July, 1996 due to loss of
HUD's Title II approval.
Guarantees None
</TABLE>
The Company is also required to meet certain net worth requirements,
reporting requirements and minimum funding amounts, in addition certain
other fees are charged to maintain the facility.
Upon the Company's announcement of HUD's action, the Company's
warehouse lender, canceled its warehouse line of credit and requested
that all loans held for sale be promptly sold off.
NOTE 5 - CAPITAL LEASE OBLIGATIONS:
Obligations under capital leases at June 30, 1996 consists of several
capitalized leases with monthly installments varying from $127 to $753
and implicit interest rates ranging from 5.5% to 17.8%. The leases
have maturity dates extending through April 1998 and are secured by
various equipment.
The following is a schedule of the future minimum lease payments under
the capital leases together with the present value of the net minimum
lease payments as of June 30, 1996.
<TABLE>
<S> <C>
Year ending June 30,
1997 $ 31,006
1998 11,389
___________
Total minimum lease payments 42,395
Less amount representing interest 4,791
___________
Present value of net minimum
lease payments 47,186
Less current maturities (43,808)
___________
$ 3,328
===========
</TABLE>
NOTE 6 - LONG-TERM DEBT:
At June 30, 1996, long-term debt consists of the following:
<TABLE>
<S> <C>
Payable due in connection
with purchase of joint
venture interest. Payments
of approximately $978 due
monthly including interest
through May 1999. $ 30,230
__________
30,230
Less current maturities 9,537
__________
$ 20,693
</TABLE>
==========
The aggregate maturities of long-term debt as follows:
<TABLE>
<S> <C>
Year ending June 30,
1997 $ 9,537
1998 10,378
1996 10,315
__________
$ 30,230
==========
</TABLE>
NOTE 7 - COMMITMENTS:
Office facilities:
The Company leases office facilities under terms of a two year
noncancelable operating lease agreement. The agreement expires on
August 31, 1997. The total commitment under these leases at June 30,
1996 is $40,105 (See Note 11).
Total rent expense under operating leases noted above and described in
Note 11 for the year ended June 30, 1996, was $37,020.
Franchise agreements:
During the year ended June 30, 1996, the Company sold three (3)
franchises to various unrelated brokers. The total franchises sold
since inception is near 300 of which approximately 25 are currently
operating and transacting business with the Company.
The franchise agreements requires the Company, for an initial term of
seven years, to provide certain services. These services are
principally in the nature of training and consulting activities that
are designed to improve the efficiency of each franchises operation.
NOTE 8 - CAPITAL STOCK:
The authorized capital stock of the Company consist of common and
preferred stock. Authorized shares of stock at June 30, 1996 were
20,000,000 shares of common stock and 500,000 shares of preferred
stock. There are 10,420,224 of common shares outstanding and 240,898
preferred shares outstanding at June 30, 1996.
NOTE 9 - TRUST LIABILITY:
The Company has a net operating carryforward of approximately
$2,548,864 (expiring in 2015) for federal income tax purposes and
(expiring in 2001) for California Franchise tax purposes. Such net
operating loss carryforwards may be used to offset federal and state
tax liability in the future.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
Mortgage banking activities:
The company enters into financial instruments with off-balance sheet
risk in the normal course of business through origination and selling
of mortgage loans. These financial instruments include commitments to
extend credit (referred to as mortgage loan pipeline) and best-effort
forward commitments. These instruments involve, to varying degrees,
elements of credit and interest rate risk. Credit risk is managed by
the Company by entering into agreements with permanent investors
meeting the credit standards of the Company. There is no risk to the
Company under a best-effort delivery commitment.
At June 30, 1996, the Company had best-effort forward commitments for
all of their loans in process.
The Company has issued various representations and warranties
associated with the sale of mortgage loans. These representation and
warranties may require the Company to repurchase loans with
underwriting deficiencies as defined per the applicable sales
agreements. The Company experienced no material losses during the year
ended June 30, 1996, regarding these representations and warranties.
NOTE 12 - RESERVE FOR BUY-BACK OF MORTGAGES:
The Company received a Notice of Withdrawal of HUD Title II lender
approval for a period of three years for failure to pay the late
payment of UFMIP funds. Upon the Company's warehouse lender canceled
its warehouse line of credit and requested that all loans held for sale
be promptly sold off. Management has established a reserve of
$450,000, to offset the expected loss due to the buy-back of the
mortgages.
MARKET DATA CORPORATION
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
MICHAEL B. JOHNSON & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
9175 EAST KENYON AVE. SUITE 100
DENVER, CO 80237
Michael B. Johnson C.P.A. Telephone (303) 795-0099
Member A.I.C.P.A.
Colorado Society of C.P.A.'s
INDEPENDENT AUDITORS' REPORT
Board of Directors
Market Data Corporation
Houston, Texas
We have audited the accompanying Balance Sheet of Market Data Corporation as of
June 30, 1996, and the related Statement of Operations, Stockholders' Equity
and Cash Flows for the year ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renet Financial Corporation as
of June 30, 1996, and the results of its operations and its cash flows for the
year ended June 30, 1996, in conformity with generally accepted accounting
principles.
As shown in the financial statements, the Company incurred a net loss of
$2,040,655. As of June 30, 1996, current liabilities exceed current assets by
$703,286, and total liabilities exceed total assets by $755,547. These factors
indicate that the Company may be unable to continue in existence. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
Michael B. Johnson & Co., P.C.
Denver Colorado
October 14, 1996
MARKET DATA CORPORATION
BALANCE SHEET
JUNE 30,
<TABLE>
<S> <C>
1996
_____________
ASSETS:
Current Assets:
Cash and cash equivalents $ 81,207
Accounts receivable 297,158
Inventory 5,058
Prepaid expenses 24,082
Mortgage loans held for sale 2,398,837
_____________
Total Current Assets 2,806,342
Property and Equipment, net of accumulated
depreciation of $451,790 123,499
Other Assets:
Other assets 3,678
Investment in equity securities 24,000
Note receivable from InfoPlan 168,826
Goodwill, net 101,807
_____________
Total Other Assets 298,311
_____________
TOTAL ASSETS $ 3,228,152
_____________
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Mortgage warehouse credit $ 2,398,837
Notes payable to a bank 254,000
Current maturities of capital
lease obligations 43,808
Current maturities of long-term debt 9,537
Accounts payable 413,652
Accrued expenses 380,137
Trust liability 9,657
_____________
Total Current Liabilities $ 3,509,628
Long-Term Liabilities:
Capital lease obligations,
less current maturities 3,378
Long-term debt, less current
maturities 20,693
_____________
Total long-term Liabilities 24,071
Commitments and Contingencies:
Reserve for buy-back of mortgages 450,000
Stockholders' Equity:
Common stock, .001 par value; 50,000 shares
authorized, 16,756,255 shares issued
and outstanding at June 30, 1996 16,756
Additional paid-in capital 1,575,464
Retained earnings (deficit) (2,347,757)
_____________
Total Stockholders' Equity (755,547)
_____________
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 3,228,152
=============
</TABLE>
MARKET DATA CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
REVENUE:
Loan origination fees $ 1,985,286
Gains on sales of mortgage loans 567,601
Initial franchise sales 207,262
Product and software sales 413,324
Other fees and income 131,644
_____________
Total Revenue 3,305,117
OPERATING EXPENSES:
Franchise commissions 463,194
Salaries and related benefits 1,112,699
Loan officer commissions 942,951
Marketing 35,737
Loan processing costs 234,143
Other general and administrative 1,958,133
Market Data operating costs 144,460
_____________
Total Operating Expenses 4,891,317
OPERATING (LOSS) (1,586,200)
OTHER INCOME (EXPENSE):
Interest income 201,498
Interest expense (205,953)
Loss on buy-back of mortgages (450,000)
_______________
Net Total Other Income (Expense) (454,455)
_______________
NET (LOSS) $ (2,040,655)
_______________
NET (LOSS) PER COMMON SHARE (.22)
WEIGHTED AVERAGE SHARES OUTSTANDING 9,311,418
===============
</TABLE>
MARKET DATA CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(2,040,655)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation and amortization 131,062
Change in assets and liabilities:
Accounts receivable 978,543
Inventory 1,549
Prepaid expense 15,674
Mortgage loans held for sale (1,212,601)
Other assets 922
Accounts payable and accrued expenses 422,660
_____________
Net cash (used in) operating activities $(1,702,846)
CASH FLOWS FROM INVESTING ACTIVITIES:
Reserve for mortgage buy back 450,000
Purchase of goodwill (48,024)
_____________
Net cash (used in) investing activities 401,976
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on long-term
debt obligations (60,785)
Borrowings on mortgage warehouse credit
facility 1,212,601
Note payable to an individual (18,000)
______________
Net cash provided by financing activities 1,133,816
______________
Net decrease in cash and cash equivalents $ (167,054)
CASH AND CASH EQUIVALENTS:
Beginning of period 248,261
______________
End of period $ 81,207
</TABLE>
MARKET DATA CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
Additional Retained Total
COMMON STOCK Paid-in Earnings Stockholder'
________________________
Shares Amount Capital (Deficit) Equity
____________ __________ __________ ____________ ____________
Balance -
June 30, 1995 5,589,000 $ 5,589 $ 309,809 $ 291,427 $ 606,825
Issuance of Stock 11,167,255 11,167 1,265,655 (598,539) 678,283
Net Loss 0 0 0 (2,040,655) (2,040,655)
Balance -
June 30, 1996 16,756,255 $ 16,756 $1,575,464 $(2,347,767) $ (755,547)
=========== ========== ========== ============ ============
</TABLE>
MARKET DATA CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Market Data Corp., a Texas Corporation, traded on the National
Quotation System under the symbol ("MADA"), Market Data Acquisition
Corp. ("MDAC"), a California corporation and Wholly-owned subsidiary of
MDC, and Renet Financial Corporation ("RENET"), a California
corporation, entered into a Plan and Agreement of Merger (the "Plan")
on October 25, 1995, to merge RENET with and into MDAC (the "Merger"),
with Market Data Corp. being the surviving corporation and wholly-owned
subsidiary of RENET, and MDAC ceasing operations.
The Merger was completed on March 1, 1996, and in accordance with the
Plan: 1) each outstanding share of RENET common stock was converted
into the right to receive 0.9403555 shares of MDC's common stock; 2)
each outstanding share of RENET preferred stock was converted into the
right to receive 5.642133 shares of MDC's common stock; 3) each option
currently outstanding to purchase shares of RENET common stock was
converted into the right to purchase .9403555 shares of MDC's common
stock; and 4) RENET became a wholly owned subsidiary of MDC. The
shareholders of RENET own 66.25% of the issues and outstanding shares
of MDC following the Merger.
No monetary consideration was exchanged in the merger. The merger was
a combination of a pooling of interests of both parties. MDC issued
11,167,255 shares of its common stock in exchange for each outstanding
share of RENET common stock, which was converted into the right to
receive 0.940355 shares of MDC's common stock, and each outstanding
share of RENET's preferred stock was converted into the right to
receive 5.642133 shares of MDC's common stock. Each option currently
outstanding to purchase shares of RENET common stock was converted into
the right to purchase shares covered by, and the per share exercise
price of each such option, for a total of 3,525,282 options being
issued. RENET became a wholly-owned subsidiary of MDC. The
shareholders of RENET own 66.25% of the issued and outstanding shares
of MDC following the Merger.
This transaction will be treated as a non-taxable exchange of stock
under Section 368(a)(1)(B) of the Internal Revenue Code of 1936, as
amended and accounted for as a pooling of interests. The recorded
assets and liabilities of MDC and RENET were carried forward to the
combined corporation at their recorded amounts. Income of the combined
corporation includes income of MDC and RENET for the entire fiscal
period in which the combination occurs.
Nature of Business:
Market Data Corp. (the Company) markets financial information systems,
software and on-line subscription financial data. The information
systems are sold under a dealer arrangement with Data Broadcasting
Corporation (DBC), formerly FNN Data Broadcasting. The Company also
has dealer arrangements with several software companies to market
financial information and analysis software. The mortgage division
sells franchises for full service loan brokerage operations to licensed
real estate brokers. The Company is also engaged in certain mortgage
banking activities including originating, processing, funding, and
selling mortgage loans for permanent investors.
The Company receives origination fees for securing real estate mortgage
loans for its customers and franchises. In addition, if the Company
funds the loan, it will receive funding fees and may incur a gain or
(loss) on the subsequent sale of the loan.
The Company is qualified as a Tittle I Nonsupervised Mortgagee (direct
Endorsement Lender) under the regulations promulgated by the US
Department of Housing and Urban Development (HUD). This qualification
enables it to originate, process, fund and broker applications for FHA
insured and guaranteed mortgage loans. This approval does not extend
to the Company's franchised offices. As condition of that
qualification, the Company is required to confirm to certain HUD
regulations and a $50,000 net worth requirement.
On May 28, 1996, the Company received a Notice of Withdrawal of HUD
Title II lender approval for a period of three years for failure to pay
the late payment of UFMIP funds. In addition, HUD intents to assess
$50,000 in civil penalties for these violations of HUD regulations.
The company has requested a hearing in reference to HUD actions. The
date of the hearing has not yet been set. A contingent liability of
$50,000 has been accrued with the potential loss included in the income
statements.
Additionally, the Company is qualified as a Veteran Administration (VA)
Automatic Lender and is approved under the VA Lender Appraisal
Processing Program (LAPP)
The Company also has a Consumer Finance Lender (CFL) license from the
California Department of Corporations. As a result of the HUD action,
an audit was conducted by the California Department of Real Estate and
made specific findings which may lead to a "Cease and Desist" order
based upon unpaid MIP's.
Revenue Recognition:
Revenue is recognized at the time of sale. Accounts receivable are
written-off when deemed uncollectible.
Cash and Cash Equivalents:
The Company considers all highly-liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Restricted Cash:
The Company is required to maintain a deposit account with the bank of
its warehouse line lender. Thus $5,404 of the cash balances are
restricted.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out) or
market, and consists of signal receiving equipment and software.
Property and Equipment:
Property and equipment is stated at cost. The cost of ordinary
maintenance and repairs is charged to operations while renewals and
replacements are capitalized. Depreciation is computed on the
straight-line method over the following estimated useful lives:
Furniture and fixtures 5 years
Computer equipment and software 3 - 5 years
Demonstration equipment 5 years
Leased equipment 3 years
Customer Database:
The customer database, acquired by purchase, is recorded at cost and
was amortized on a straight-line basis over 5 years.
Investment in Equity Securities:
As of March 31, 1993, the Company had an investment in 150 shares of
common stock of Data Sport, Inc. stated at a cost of $36,000. During
1994, DBC acquired all of the shares of Data Sport, Inc., and in
exchange for its 150 shares, the company received a warrant to purchase
9,167 shares of DBC common stock at $4.61 per share through December
31, 1998. The Company recognized a $12,000 loss on the exchange,
stating the investment in the DBC warrant, which is classified as
available-for-sale, at an estimated market value of $24,000 at March
31, 1994. There was no change in estimated market value during 1995
nor 1996.
Franchise Sales and Fees:
Franchise sales and fees are recognized, net of an allowance for
uncollectible amounts, when substantially all significant services to
be provided to the franchisee have been performed.
Franchisees generally pay the entire franchise fee within one to three
years of the date of each franchise agreement. A down payment is paid
upon initiation with the balance payable in monthly installments,
without interest. Certain franchisees have arrangements whereby a
portion of the brokerage fees due to them are offset against their
franchise fee obligation to the Company. Such arrangements are
recorded gross. Franchise receivables, which are expected to be
realized over periods longer than one year, are recorded at their
discounted present value.
Franchise receivables are not recorded on a straight-line basis, using
the normal franchise period of seven (7) years due to the accelerated
payment option extended to the franchisee.
Mortgage Loans Held for Sale:
Real estate mortgage loans held for sale are carried at the lower of
cost or market and market is determined by the price the loan was sold
for.
Loan origination fee:
The Company recognizes loan origination fees and related costs from
loan broker activities when the loan is funded by the lender. If the
Company funds the loan, loan origination fees and any related costs are
included as components of the carrying value of the loans and are
recognized as income when the corresponding loan is sold.
Goodwill:
Goodwill, acquired in June 1994, is being amortized over a period of
ten (10) years.
Federal Income Tax:
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting For Income Taxes."
FAS 109 requires the recognition of deferred tax liabilities and assets
for the anticipated future tax effects of temporary differences that
arise as a result of differences in the carrying amounts and tax bases
of assets and liabilities. There was no material effect on the
financial statements as a result of adopting FAS 109.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2 - SALE OF LICENSE AGREEMENTS:
Effective March 31, 1994, the Company sold its license agreements to
DBC for $400,000. A gain of $378,099 was recorded in the 1994
Statement of Operations. In addition to the $400,000, DBC will pay to
the Company no later than May 1st each year, the excess, if any, of 50%
of the gross margin generated during each twelve-month period occurring
during the five-year period ending March 31, 1999, less a specified
minimum gross margin. DBC's payment obligations during the five-year
period will not exceed $400,000.
Note 3 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 360,358
Computer equipment and software 209,986
Demonstration equipment 3,295
Leased equipment 1,650
______________
575,289
Less: Accumulated depreciation 451,790
______________
$ 123,499
==============
</TABLE>
NOTE 4 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<S> <C>
Balance
Origination fees receivable $ 4,900
Franchise fees receivable 128,728
Renet receivable and advances 56,420
Market Data Corp. receivable 64,541
InfoPlan receivable 42,569
_____________
Total Accounts Receivable $ 297,158
=============
</TABLE>
NOTE 5 - RECEIVABLE FROM INFOPLAN:
The Company has a note receivable of $168,826 at June 30, 1996, from
InfoPlan International, Inc. The note bears interest at 9% and is due
February 28, 1997. Additionally, the Company has advances to Infoplan
of $42,569 at June 30, 1996. The note and the advances are secured by
an Intellectual Property Collateral Assignment.
InfoPlan failed to meet the terms of the repayment schedule of the note
receivable. On June 16, 1995, demand was made for repayment in full of
all monies owed the Company by InfoPlan. On September 25, 1995, the
Complaint was filed in Federal Court.
InfoPlan signed an Agreed Judgment for actual damages in the amount of
$385,395, plus attorney fees, pre-judgment interest and post-judgment
interest. The Agreed Judgment was final as of December 27, 1995. On
February 12, 1996, the Company received a payment from InfoPlan in the
amount of $147,000. The balance of the principal plus other fees was
to be paid in installments on May 31, 1996, July 31, 1996, and
September 30, 1996. InfoPlan did not pay these installments. InfoPlan
failed to meet these installments, so the Agreed Judgment may be
executed without notice. The Company believes the value of the
collateral exceeds the value of the debt.
NOTE 6 - FRANCHISE FEES RECEIVABLE:
At June 30, 1996, franchise fees receivable consist of the following:
<TABLE>
<S> <C>
Gross franchise fees receivable $ 1,126,968
Amount representing interest (60,000)
Allowance for doubtful accounts (933,340)
______________
Less current portion 133,628
Long-term portion 133,628
______________
$ 0
==============
</TABLE>
NOTE 7 - MORTGAGE WAREHOUSE CREDIT FACILITY:
The Company has a line of credit arrangement (mortgage warehouse credit
facilities) with a financial institution which is used to fund mortgage
loan originations and is secured by the respective mortgage loans which
the facility has funded. Certain of the specific terms for the
agreement are as follows:
<TABLE>
<S> <C>
Facility A
Borrowing base $3,000,000
Advance limits 96% - 100% of loan funded
Interest rate Prime plus 1.5% (10.0%)
Balance outstanding at
June 30, 1996 $ 2,398,837
Additional collateral Deposit account maintained at
institution, this account is
restricted and was $5,404.
Maturity date April 11, 1996, subsequently
extended to October 31, 1996, then
canceled in July, 1996, due to loss
of HUD's Title II approval.
Guarantees None
</TABLE>
The Company is also required to meet certain net worth requirements,
reporting requirements and minimum funding amounts, in addition certain
other fees are charge to maintain the facility.
Upon the Company's announcement of HUD's action, the Company's
warehouse lender, canceled its warehouse line of credit and requested
that all loans held for sale be promptly sold off.
NOTE 8 - CAPITAL LEASE OBLIGATIONS:
Obligations under capital leases at June 30, 1996, consists of several
capitalized leases with monthly installments varying from $127 to $753
and implicit interest rates ranging from 5.5% to 17.8%. The leases
have maturity dates extending through April 1998 and are secured by
various equipment.
The following is a schedule of the future minimum lease payments under
the capital leases together with the present value of the net minimum
lease payments as of June 30, 1995.
<TABLE>
<S> <C>
Year ending June 30,
1997 $ 31,006
1998 11,389
___________
Total minimum lease payments 42,895
Less amount representing interest 4,791
___________
Present value of net minimum
lease payments 47,186
Less current maturities (43,808)
___________
$ 3,328
===========
</TABLE>
NOTE 9 - LONG-TERM DEBT:
At June 30, 1996, long-term debt consists of the following:
<TABLE>
<S> <C>
Payable due in connection with purchase
of joint venture interest. Payments of
approximately $978 due monthly including
interest through May 1999. $ 30,230
__________
30,230
Less current maturities 9,537
$ 20,693
==========
</TABLE>
The aggregate maturities of long-term debt as follows:
<TABLE>
<S> <C>
Year ending June 30,
1997 $ 9,537
1998 10,378
1999 10,315
__________
$ 30,230
==========
</TABLE>
NOTE 10- COMMITMENTS:
Office facilities:
The Company leases office facilities under terms of a two year
noncancelable operating lease agreement. The agreement expires on
August 31, 1997 and November 30, 1997. The total commitment under
these leases at June 30, 1996 is $66,971.
Total rent expense under operating leases noted above for the year
ended June 30, 1996, was $63,886.
Franchise agreements:
During the year ended June 30, 1996, the Company sold three (3)
franchises to various unrelated brokers. The total franchises sold
since inception is near 300 of which approximately 25 are currently
operating and transacting business with the Company.
The franchise agreements require the Company, for an initial term of
seven years, to provide certain services. These services are
principally in the nature of training and consulting activities that
are designed to improve the efficiency of each franchise operation.
NOTE 11 - TRUST LIABILITY:
The Company receives deposits from customers to pay incidental loan
costs (appraisals, credit reports, etc.). Such funds are maintained in
separate bank account and accounted for as required by the California
Department of Real Estate.
NOTE 12 - INCOME TAX LOSS CARRYFORWARD:
The Company has a net operating carryforward of approximately
$2,548,864 (expiring in 2014) for federal income tax purposes and
$196,500 (expiring in 2000) for California Franchise tax purposes.
Such net operating loss carryforwards may be used to offset federal and
state tax liability in the future.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
Mortgage banking activities:
The company enters into financial instruments with off-balance sheet
risk in the normal course of business through origination and selling
of mortgage loans. These financial instruments include commitments to
extend credit (referred to as mortgage loan pipeline) and best-effort
forward commitments. These instruments involve, to varying degrees,
elements of credit and interest rate risk. Credit risk is managed by
the Company by entering into agreements with permanent investors
meeting the credit standards of the Company. There is no risk to the
Company under a best-effort delivery commitment.
At June 30, 1996, the Company had best-effort forward commitments for
all of their loans in process.
The Company has issued various representations and warranties
associated with the sale of mortgage loans. These representation and
warranties may require the Company to repurchase loans with
underwriting deficiencies as defined per the applicable sales
agreements. The Company experienced no material losses during the year
ended June 30, 1996, regarding these representations and warranties.
NOTE 14 - RESERVE FOR BUY-BACK OF MORTGAGES:
The Company received a Notice of Withdrawal of HUD Title II lender
approval for a period of three years for failure to pay the late
payment of UFMIP funds. Upon the Company's warehouse lender canceling
its warehouse line of credit and requested that all loans held for sale
be promptly sold off. Management has established a reserve of $450,000
to offset the expected loss due to the buy-back of the mortgages.
NOTE 15 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accept accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained a substantial operating loss this year. At June 30,
1996, current liabilities exceed assets by $703,286 and total
liabilities exceed total assets by $755,547. The company's mortgage
warehouse lender has demanded immediate payment of the outstanding
balance because the Company violated certain provisions of the loan
agreement. Both federal and state agencies may assess additional fines
and penalties.
In view of these matters, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financial requirements, and the success
of its future operations. Management believes that actions presently
being taken to revise the Company's operating and financial
requirements provide the opportunity for the company to continue as a
going concern.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 81,207
<SECURITIES> 0
<RECEIVABLES> 465,984
<ALLOWANCES> 0
<INVENTORY> 5,058
<CURRENT-ASSETS> 2,806,342
<PP&E> 451,790
<DEPRECIATION> 328,291
<TOTAL-ASSETS> 3,228,152
<CURRENT-LIABILITIES> 3,509,628
<BONDS> 0
0
0
<COMMON> 16,756
<OTHER-SE> 772,303
<TOTAL-LIABILITY-AND-EQUITY> 3,228,152
<SALES> 413,324
<TOTAL-REVENUES> 3,305,117
<CGS> 0
<TOTAL-COSTS> 4,891,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,953
<INCOME-PRETAX> (2,040,655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,040,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,040,655
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
